House GOP Rejects 2-Month Payroll Tax Cut

WASHINGTON — The House Tuesday rejected legislation to extend a payroll tax cut and jobless benefits for two months, drawing a swift rebuke from President Barack Obama that Republicans were threatening higher taxes on 160 million workers on Jan. 1.

Obama, in an appearance in the White House briefing room after the House vote, said the two-month compromise is the only way to stop payroll taxes from going up by two percentage points.

“Now let’s be clear,” Obama said in a surprise appearance in the White House briefing room. “The bipartisan compromise that was reached on Saturday is the only viable way to prevent a tax hike on January 1st. The only one.”

Obama said failure to pass the Senate version of the payroll tax cut extension could endanger the U.S. economic recovery, which he described as “fragile but moving in the right direction.”

House Republicans controlling the chamber want instead immediate negotiations with the Senate on a year-long plan. But the Senate’s top Democrat on Tuesday again ruled out talks until the House passes the stopgap measure.

“President Obama needs to call on Senate Democrats to go back into session … and resolve this bill as soon as possible,” said House Speaker Boehner, R-Ohio. “I need the president to help out.”

If Congress doesn’t break the stalemate and pass a bill by the end of the year, payroll taxes will go up by almost $20 a week for a worker making a $50,000 salary. Almost 2 million people could lose unemployment benefits as well, and doctors would bear big cuts in Medicare payments.

The House vote, 229-193, kicks the measure back to the Senate, where the bipartisan two-month measure passed on Saturday by a sweeping 89-10 vote. The Senate then promptly left Washington for the holidays. Senate Majority Leader Harry Reid, D-Nev., says he won’t allow bargaining until the House approves the Senate’s short-term measure.

“I have been trying to negotiate a yearlong extension with Republicans for weeks, and I am happy to continue doing so as soon as the House of Representatives passes the bipartisan compromise to protect middle-class families, but not before then,” Reid said.

The House vote caps a partisan debate on Obama’s jobs agenda, which has featured numerous campaign-style appearances but little real bipartisan negotiation, other than Senate talks last week that produced the two-month extension.

The Senate’s short-term, lowest-common-denominator approach would renew a 2 percentage point cut in the Social Security payroll tax, plus jobless benefits averaging about $300 a week for the long-term unemployed, and would prevent a 27 percent cut in Medicare payments to doctors. The two-month, $33 billion cost would be financed by a 0.10 percentage point hike in home loan guarantee fees charged by mortgage giants Fannie Mae and Freddie Mac, which the administration says would raise the monthly payment on a typical $210,000 loan by about $15 a month.

The House passed a separate plan last week that would have extended the payroll tax cut for one year. But that version also contained spending cuts opposed by Democrats and tighter rules for jobless benefits.

Both the House and Senate bills included a provision designed to force Obama to make a decision on construction of the controversial Keystone XL pipeline, which would deliver up to 700,000 barrels of oil daily from tar sands in Alberta, Canada, to refineries in Texas. The provision requires him to issue the needed permit unless he declares the pipeline would not serve the national interest.

Democrats and the White House had reversed course and accepted GOP demands on Keystone, which contributed to sweeping Senate GOP support for the two-month measure. The White House signaled that Obama would block the project.

Until this weekend, it was assumed that Boehner had signed off on the Senate measure. After all, it was agreed to by Boehner’s trusted confidante, Senate GOP Leader Mitch McConnell of Kentucky. Boehner declined on several occasions Friday to reject the idea.

But rank-and-file House Republicans erupted in frustration at the Senate legislation, which drops changes to the unemployment insurance system pressed by conservatives, a freeze in the salaries of federal workers and cuts to President Barack Obama’s health care law.

Also driving their frustration was that the Senate, as it so often does, appeared intent on leaving the House holding the bag – pressuring House lawmakers to go along with its plan. Tuesday’s vote technically puts the onus back on the Senate – but also invites a full-blown battle with Obama, whose poll numbers have inched up during the battling over his jobs initiative.

Both sides were eager to position themselves as the strongest advocates of the payroll tax cut, with House Republicans accusing the Senate of lollygagging on vacation and Senate Democrats countering that the House was seeking a partisan battle rather than taking the obvious route of approving the stopgap bill to buy more time for negotiations.

“If you say you want to do this for a year, put your vote where your rhetoric is,” said Rep. Jeb Hensarling of Texas, a member of the House GOP leadership. “If you’re not willing to work over the holidays, admit to the American people that you’re not willing to work over the holidays.”

“Right now Americans want two things from their Congress: middle class tax relief and compromise,” said Rep. Steve Israel of New York, chairman of the House Democrats’ fundraising committee. “House Republican partisanship failed on both counts.”

A lapse of the tax cut means that about $2.5 billion a week more would be withheld from paychecks, though the money could be returned retroactively to taxpayers.

Payroll processors say the two-month Senate version is too complicated. It extends the tax cut, which lowers the Social Security tax to 4.2 percent from 6.2 percent, for only two months. And it limits the lower rate to wages up to $18,350 through Feb. 29. Wages above that amount would be taxed at the old 6.2 percent rate.

The wage limit is meant to make sure upper-income taxpayers don’t benefit more than others if the rate goes reverts to 6.2 percent March 1. The Social Security tax applies only to the first $110,100 in annual wages. Without a wage limit, high earners could pay the lower rate on a big chunk – perhaps all – of their Social Security tax obligation. Others would end up paying the higher rate on most of their earnings.

Payroll companies say it would be difficult to adjust their computer systems to reflect the differing time periods and income levels on short notice.

“While any short-term extension is bound to create some administrative complications, it is feasible to implement the bipartisan Senate bill,” said a Treasury Department statement. “Any such complications will be outweighed by the economic benefits of ensuring that taxes do not go up on 160 million Americans starting on January 1st.”

The annual “fix” to Medicare fees has lapsed many times before.

Medicare announced Tuesday that, as it has in the past when doctors’ reimbursements have been cut through congressional inaction, it would withhold physician payments for two weeks in January to avoid passing on a 27 percent cut in Medicare fees. The hope is that the problem gets fixed by then.